On 23 September 2008, the HKMA issued a circular to all registered institutions with respect to investment products related to Lehman Brothers. Key points covered in the circular include:
- Handling of enquiries and complaints
- Attention is drawn to the circular issued by the Securities and Futures Commission (SFC) on 19 September 2008 (set out below), which is applicable to all registered institutions
- All registered institutions that had sold Lehman products at the retail level are required to put in place the following measures and report to the HKMA by 24 September 2008 of the measures being taken:
- write directly to inform their relevant customers to explain the latest situation, how the customers have been affected, and what options, if any, are available to them;
- immediately establish a dedicated telephone hotline to answer enquiries from their customers; and
- arrange briefings/updates for customers who had purchased Lehman products.
- Selling of investment products
- All registered institutions are required to comply with the SFC Code of Conduct in selling securities and futures products, including the requirement to explain to the clients the products and the risks involved. Registered institutions are required to assure themselves that customers understand the nature and risks of the products, which are consistent with the customers' investment objectives. Institutions should also be certain that the customers have sufficient net worth to assume the risks and bear the potential losses of trading in the products.
- The HKMA Supervisory Policy Manual requires the risk management functions/departments of registered institutions to ensure that the risks are well understood and adequately assessed before an institution launches a new product or service, and all relevant departments, e.g. risk control, accounting, operations, legal and compliance, should be consulted as appropriate.
- In view of the current market situation, institutions are expected to immediately review the risk level of all investment products being sold to ensure that they are sold only to customers with comparable risk appetite.
- Institutions should critically review the selling process for Lehman products to determine if there are areas that fall short of the requirements under the SFC Code of Conduct and implement enhancements where necessary.
A copy of the circular is available on the HKMA website.